An interesting observation.
If stocks were priced correctly from the get go during their IPO, there should be no profit left over for secondary investors - i.e. - sheeple throwing their money into 401k's and IRA's.
But when you factor in exterior forces such as tripling the money supply, artificially low interest rates, an entire industry contingent on churning investments, and sheep flooding the market because "I sure hope dem der stocks go up in value," you get an anomaly of a forever increasing stock market.
But don't let me be the party pooper to you guys forever making magical money by not working or expending labor.
Sad news,
ReplyDeleteTom Leykis is finishing his show this year. This will be his last year.
Hope you make a video response.
I'm not even sure if it matters if an asset is immediately perfectly priced (net present value blah blah blah) for all time or if it keeps going up due to the "rent value" of capital in the most predictable calculated upwards path simply because it's lovely to look at. Whatever works, I guess. The math is easy, the sociology is hard.
ReplyDeleteFuture inflation is not priced into current stock prices because THAT MONEY HASN'T BEEN PRINTED YET.
ReplyDeleteLook up the St Petersburg paradox.
If you use the "discounted cashflow" method of pricing stocks, you'll use a discount rate of something like 4% (30 year treasury), but realize that stock dividends always increase faster than interest rates (say 5% annual dividend growth). Then when you discount future cashflows, you're discounting cash that is 5% bigger every year at a rate of 4%. I.e., it's an increasing geometric series. So the present value of any stock, assuming it never goes bankrupt, is infinite.
Also, read up about what happened to XIV on Monday. Suckers lost their money.
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